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New Legislation Provides Retirement Plan Relief

In the waning days of 2008, President Bush signed legislation aimed at safeguarding the retirement plans of seniors which have been battered during the current economic storm. Under the Worker, Retiree, and Employer Recovery Act of 2008, the required minimum distributions for most retirement plans and accounts (other than defined benefit pension plans)—e.g. money purchase pension plans, IRAs, 401(k) and 403(b) plans—will be waived for the 2009 tax year.

Ordinarily, qualified retirement plan and IRA owners over age 70 ½ are required to take yearly distributions from their accounts. (Owners of inherited retirement plans are subject to required minimum distribution rules as well, regardless of age.) At age 71, the required distribution is approximately 3.8 percent of the value of the account, and, by age 90, such required amount increases to 8.8 percent. Failure to take the required distribution in any year triggers an excess accumulation tax equal to 50 percent of the amount not properly distributed, except in 2009.

Due to the ongoing distress in the securities markets, retirement plan participants and account owners have witnessed a substantial decline in the value of assets in their accounts. In an effort to resuscitate retirement plans across the nation and help rebuild diminished value, Congress has suspended required minimum distributions for 2009. Put simply, owners of IRAs, and participants in 401(k), 403(b), and other defined contribution plans are not required to withdraw funds from their accounts this year. It is expected that the special 2009 dispensation will not be extended, so it is best to proceed as if the normal required minimum distribution rules will resume in 2010. Also note that this waiver has no effect on required minimum distributions for the 2008 tax year.

This correspondence should not be construed as legal advice or legal
opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult a lawyer concerning your own situation and legal questions.